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Eligibility and cost depend on the business’s full facts—not just its turnover. Check the current law and GST Portal guidance before opting in, particularly for the applicable turnover limit, state and supply category.
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How the GST Composition Scheme works
The scheme is an option under section 10 of India’s Central Goods and Services Tax Act, 2017, for qualifying registered persons. It is not an automatic registration category for every small business. A business must opt in and continue to meet the applicable statutory conditions.
Instead of following the ordinary GST calculation and invoicing approach, a composition taxpayer pays tax at the prescribed rate for its eligible category, subject to the composition rules. The taxpayer issues a bill of supply rather than a regular taxable invoice, cannot collect GST separately from customers under the scheme, and cannot claim input tax credit on purchases.
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The tax calculation is not simply a single rate for all businesses. Rates and conditions depend on the applicable statutory route and category. CBIC’s rules table is a useful starting point, but the relevant provision and notifications must be checked for the particular business and tax period: CBIC composition rules.
Who is eligible for the GST Composition Scheme?
Eligibility depends on aggregate turnover in the preceding financial year and on statutory conditions about the taxpayer and its supplies. Aggregate turnover has an all-India, same-PAN dimension: assessing only one shop or one state registration can give the wrong result. The business should consider its complete footprint, supply mix, registered places of business, and any exclusions under section 10 and the rules.
Casual taxable persons and non-resident taxable persons are excluded from opting through the ordinary composition process. Other conditions and exclusions also apply, so a turnover figure by itself does not establish eligibility. Consult the current consolidated Act, rules and notifications for the business’s category and state. The legal starting point is section 10 of the CGST Act.
What is the turnover limit?
There is no safe universal figure to quote without checking the current operative rule for the business’s state and category. Official materials present different threshold snapshots. CBIC’s 2019 overview listed a ₹1.5 crore goods limit, ₹75 lakh for specified special-category states, and a separate ₹50 lakh preceding-year threshold for eligible service suppliers using the 6% scheme. Those are dated figures, not proof of the current limit: CBIC’s September 2019 GST update.
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The GST Portal Welcome Kit also presents ₹1.5 crore for goods in most states, ₹75 lakh for the states it identifies, and ₹50 lakh for services or mixed supplies, but its threshold presentation does not align perfectly with the 2019 overview’s state list or service descriptions. Do not combine the two snapshots into a new rule. Verify the current notified threshold applicable to the taxpayer: GST Portal Welcome Kit.
What changes if you opt in?
- Customer invoices: Issue a bill of supply, not a regular taxable invoice, and do not collect GST separately from customers as under the ordinary route.
- Input tax credit: You cannot claim ITC on inward supplies. This can make the scheme less attractive when business purchases carry substantial GST that would otherwise qualify for credit.
- Inter-State outward supplies: These are restricted under the ordinary composition conditions. A business whose sales require inter-State supplies should confirm whether it can use the scheme before opting in.
- Other tax liabilities: The taxpayer remains liable for tax on relevant inward supplies, including applicable reverse-charge amounts.
- Loss of eligibility: If a condition stops being met, the taxpayer becomes liable under the ordinary section 9 levy from the relevant date and must follow the applicable withdrawal and invoicing requirements. Check the current rules and portal process, including the consequences for stock and ITC, before changing status.
How does composition compare with regular GST?
This is a high-level comparison, not a calculation of an individual taxpayer’s liability. The regular route’s actual result depends on applicable rates and normal ITC conditions.
| Decision factor | Composition route | Ordinary GST route |
|---|---|---|
| ITC on business purchases | Not available to the composition taxpayer. | Potentially available, subject to normal ITC conditions. |
| Customer invoicing and buyer credit | Bill of supply; GST cannot be collected separately under the scheme. | Tax invoice with GST shown as applicable; an eligible buyer may claim credit. |
| Supply geography | Inter-State outward supplies restricted under ordinary composition conditions. | Can support inter-State taxable supplies, subject to normal GST compliance. |
| Tax calculation | Prescribed composition rate and turnover base for the applicable category. | Applicable output tax, with eligible ITC offset. |
| Administration | Simplified payment and return pattern described by GST Portal guidance. | More detailed normal taxpayer filing and supply reporting. |
Who should consider choosing it?
Consider the scheme only if the business qualifies and the economics and operating restrictions suit it. A local retailer or restaurant selling mainly to final consumers may be a candidate, but the business label alone does not prove eligibility.
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1Repair Windows errors before they cause bigger problems2Fix the driver behind crashes, sound loss and screen glitches3Clear out junk files and repair common Windows errors- It may suit you if most customers are consumers, eligible ITC on purchases is relatively low, the business can stay within geographic and supply restrictions, and the simpler payment and return routine matters to you.
- Regular GST may fit better if customers are GST-registered businesses that value ITC, the business has substantial GST-bearing purchases, or it needs to make inter-State outward supplies.
A lower-looking composition rate does not by itself mean lower overall cost. Compare the composition tax with ordinary output tax after eligible ITC, and account for customer expectations and the effect of not being able to collect GST separately.
How to decide before opting in
- Calculate the relevant turnover: Work out aggregate turnover for the preceding financial year across the same PAN’s India-wide business footprint, not just one outlet or GST registration.
- Confirm the current eligibility rule: Check the business’s state, supply category, turnover threshold, full supply pattern and any statutory exclusions against current law and notifications.
- Review geography and customers: Identify whether the business needs inter-State outward supplies and whether its customers are mainly consumers or GST-registered buyers seeking credit.
- Compare the tax economics: Estimate composition tax and compare it with ordinary output tax after eligible ITC. Include the value of credit lost on purchases and the impact of the invoice restrictions.
- Plan for change: Consider what happens if turnover increases or the supply pattern changes during the year. Review the current withdrawal process and related invoicing, stock and ITC consequences before opting in.
GST Portal guidance describes quarterly payment through Form GST CMP-08 and an annual Form GSTR-4 return; it also says composition taxpayers do not file GSTR-1. Confirm active form instructions and due dates on the portal, since administrative requirements can change. See the GST Portal returns guidance and the GSTR-1 user guide. For a decision involving multiple registrations, mixed supplies or a planned exit, a GST practitioner can apply the current rules to the full facts.
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